1. The Production Possibilities Frontier (8/17) A. PPF: various combos
of goods/services
an economy can
produce when all
resources are
fully employed
B. Shift production from A to B: the opportunity
cost of producing 25
more units of butter
= 20 guns
100 80 40
GUNS
BUTTER

2. C. What is going on at point X?
D. How can this economy reach production at point Y?
100 80 40
GUNS
BUTTER

3. For each scenario, draw a PPF graph that represents America, with guns on the x-axis and butter on the y-axis. Then add a new curve or use/add specific points on the graph to illustrate each scenario.
There is a nationwide strike of all teachers in America.
War has broken out between America and Canada.
The nation plans to invest in technological research for automobile plant machinery.
The nation has been subsidizing college and vocational education.
A plague has wiped out ¼ of the population.

4. Partner/group warm-up!
With your group, predict the consequences (good or bad) of each circumstance. Have one person make a list. (Hint: Think about what industries/individuals/etc. will be affected by this situation.)
Bad weather in Florida causes many citrus orchards to freeze over.
The NFL goes on strike (or MLB, NHL, whatever)
More American companies have started outsourcing jobs to nations overseas.

6. Partner practice:
In your notebooks, draw a circular flow diagram for the following situation: In the economy of Atlantis, firms produce fish and potatoes, and households buy fish and potatoes using money. Households also provide the land and labor to firms.
2. Consider the following scenarios. Describe how each affects the circular flow of econ activity in Atlantis. Come up with at least three chain-reaction effects for each.
A devastating hurricane floods many of the potato fields.
The inhabitants of Atlantis discover Dancing with the Stars and spend several days a month at dance classes.

7. WARM UP: 9/1/15
For each of the following scenarios, start with a generic PPF with consumer goods on the x-axis and capital goods on the y-axis. Then, based on the scenario, illustrate the effect on each PPF diagram.
Because of a recession, people are not buying as many goods as they were before, and some factories have stopped production.
Health care in the nation has improved, and workers are stronger and healthier than they were before.
The government plans to subsidize college tuition to encourage higher education across the nation.
A massive hurricane has rendered much of our farmland unusable.
There is a shortage of capital goods, and, as a result, adjustments in production are made.

8. Why does the US import bananas from South America
Why does the US import bananas from South America? Why does South America import wheat from the US?

9. Absolute and Comparative Advantage (9/2/15)
I. Absolute advantage: a country can produce more of a product than the other country
A. What country has the absolute advantage in
coffee? In cashews?
Alpha
Beta
40 million lbs coffee
8 million lbs cashews
6 million lbs coffee
6 million lbs cashews

10. II. Comparative advantage: the ability to produce a
product relatively more efficiently (or at a lower
opportunity cost)
Alpha
Beta
40 million lbs coffee
8 million lbs cashews
6 million lbs coffee
6 million lbs cashews
Opportunity cost of producing 1m lb cashews = 5m lbs coffee
Opportunity cost of producing 1m lb cashews = 1m lb coffee
Beta is the lower-cost producer of cashews
Opportunity cost of producing 1m lb of coffee = 1/5m lb cashews
Alpha is the lower-cost producer of coffee
Opportunity cost of producing 1m lb of cashews = 1m lb of coffee

11. Specialization increases world output:
Total Output Before Specializing (“autarky”)
Total Output After Specializing
Alpha Beta
Alpha Beta
Coffee lbs lbs = 25 lbs
Cashews 4 lbs lb = 5 lbs
Coffee lbs lbs = 40 lbs
Cashews lbs lbs = 6 lbs
How many more pounds of coffee exists in the world?
How many more pounds of cashews exists in the world?
What do we do with the extra?